The Study On The Effect Of Internal Control And External Audit On Restraining Earnings Management

With the acceleration of the process of economic globalization,the size of the company continues to expand.The information distortion caused by the management of the company for the purpose of earnings management is the most important in many reasons that cause the distortion of financial information.Because the phenomenon of out of control of earnings management behavior can seriously damage the quality of the company's financial information and result in damaging the public interest.Under this background,inhibiting the earnings management behavior becomes more and more important.In terms of restraining the behavior of earnings management,China can learn from foreign countries.Experience shows that internal control and external audit can restrain the company's earnings management behavior.Reference to this experience requires two conditions: The establishment and improvement of internal control;High quality and maturity of external audit.According to China's current situation,the above two aspects already have:(1)"enterprise internal control evaluation guide" and "enterprise internal control guide" were issued;(2)The revision of China's auditing standards continue to keep up with the changes of international auditing standards.In the above context,this paper studies the effect of internal control and external audit on restraining earnings management based on the empirical data of Chinese-listed companies from 2010 to 2014.The study found that internal control and external audit can play an inhibitory role in accrual earnings management and real earnings management in general.In addition,compared with manufacturing companies,the internal control of Non-manufacturing companies has stronger inhibitory effect on accrual earnings management and real earnings management.Because of the lack of internal control audit research,this paper also studies the relationship between internal control and external audit on restraining earnings management.The results show that there is an alternative relationship between internal control and external audit on restraining accrual earnings management.In other words,when the company accepts the high quality external audit service,the effect of its internal control on restraining the accrual earnings management declines.There is a complementary relationship between internal control and external audit on restraining real earnings management.According to these empirical studies,when the company receives the high quality external audit services,the effect of its internal control onrestraining the real earnings management improves.Research conclusions show that internal control and external audit needs to be adjusted:(1)According to the characteristics of manufacturing companies,reviewing the internal control system;(2)Reducing duplication to avoid wasting resources;(3)Researching the mechanism to Encourage synergy.